A day after Reliance Communications called off its merger talks with Aircel citing ‘legal and regulatory’ delays, Anil Ambani-led RCom on Monday expanded its board by adding four new board members. Punit Garg, president, telecom Business has been appointed as Executive Director of Reliance Communications. Manikantan V, who is the Chief Financial Officer, has been elevated as Director of the company, the company said in a BSE filing today.
After its merger plan with Aircel collapsed, Reliance Communications presented an alternative plan for debt reduction by selling company’s real estate, tower and fibre business. Suresh Rangachar, who heads the fibre and tower business as Director of Reliance Infratel Ltd (RITL), a subsidiary, has been elevated as Executive Director of RITL. Rangachar has been with the company for the last 17 years.
Gurdeep Singh, co-CEO and CEO of the Mobility Business, has also been promoted as Executive Director of Reliance Telecom Ltd, a subsidiary of the firm. Singh has been working with the company for the last 6 years.
“Merger of mobile business of RCom and Aircel lapses with mutual consent,” the Anil Ambani-led firm said in a statement. “Legal and regulatory uncertainties, and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction,” it said.
Reliance Communications (RCom), like other telecom operators, has been losing its market share to Mukesh Ambani’s Reliance Jio ever since the new entrant in the telecom sector was launched last year. RCom is in debt of about Rs 46,000 crore.
RCom and Aircel had signed binding agreements in September 2016 for the merger of mobile business. RCom also blamed high level of competition as one of the reasons for termination of the merger talks.
“Unprecedented competitive intensity in the Indian telecom sector together with fresh policy directives, adversely impacting bank financing for this sector, have also seriously affected industry dynamics. As a result of the various factors aforesaid, the merger agreement has lapsed,” RCom added.
At the Reliance Capital annual general meeting (AGM), Anil Ambani termed falling wireless telephony rates as “creative destruction” and not a “disruptive factor” and said that he would fight the attempts to thwart Reliance Communications’ revival strategy. He warned that the consolidation in the telecom industry would lead to a drastic reduction of choice for Indians.The company said that unlimited free voice offers and “irrational pricing” by all industry participants have destroyed profitability of traditional 2G and 3G mobile business.
In early July, RCom blamed Jio directly as the reason for financial stress in the telecom industry. “the telecom industry’s current financial problem to some extent can be attributed to the entry of a new telecom operator (Jio) and its strategy of offering freebies to gain customer and market share,” the company said in a notification to the BSE.
RCom has been pursuing a three way merger involving Sistema Shyam Teleservices and Aircel for more than a year. Also, it has been trying to sell the tower unit Reliance Infratel to Canada’s Brookfield to partly repay the debt of over Rs 45,000 crore. Anil Ambani’s telecom business has been shrinking in big size for last couple of years – RCom made a standalone loss of Rs 1796 crore in the last financial year, compared to its peak profit of Rs 4803 crore in March 2009 and its net sales fell by 35 per cent to Rs 8823 crore in this period. The media reported in May that RCom defaulted on its loan servicing obligations with more than 10 local banks and some of whom categorised the exposure as “special mention account” in their asset books.
In June, Anil Ambani said that the lenders have given RCom time until December to sell its towers to Brookfield and merge the wireless business with Aircel. It was claimed that with the deal the debt of RCom will come down to around Rs 20,000 crore, while that of Aircel to around Rs 4,000 crore.
RCom now plans to monetise prime real estate in Mumbai and Delhi as well as telecom tower and optic fibre assets by December to avoid lenders converting a part of their debt into equity. The company, however, also said that the combination of the mobile business of Sistema Shyam Teleservices Ltd (SSTL) into RCom will be completed this month.
This merger would bring to the company SSTLs valuable spectrum holdings in the 800-850 MHz band, strengthening RComs spectrum portfolio by 30 Mhz as well as extend its spectrum validity period in 8 important circles by another 16 years to 2033.
RCom said that its Board of Directors at a meeting held today in Mumbai reviewed the ongoing strategic transformation programme and considered alternative plans for debt reduction.
The board decided that RCom will evaluate an alternative plan for its mobile business, through optimisation of its spectrum portfolio and adoption of a 4G focused mobile strategy.
“RCom already has the unique advantage of capital light access to Indias most extensive world class nationwide 4G mobile network through spectrum sharing and ICR (intra-circle roaming) Agreements with Reliance Jio,” it said. It has spectrum across 800, 900,1800 and 2100 Mhz spectrum bands aggregating 200 Mhz, valued at over Rs 19,000 crore for the balance of validity period, based on last auction pricing.
“The company will evaluate opportunities for monetisation of the same through trading and sharing arrangements,” the statement said.
RCom had defaulted on some of its debt obligation and has been given additional time to service its debt by lenders.
“The company continues to be under a standstill period till December 2018 and expects to complete the SDR process as per applicable guidelines,” it said.
Shareholders of the company at the annual general meeting held on September 26, 2017 have already approved issuance of equity shares to lenders by conversion of loans.
RCom said that it will focus on domestic and overseas B2B business.
“These B2B businesses generate equal revenues from domestic and overseas operations. As part of the ongoing transformation and in order to enhance value for all stakeholders, the RCom board reaffirmed the focus on these stable, capital light B2B businesses which have sustained and predictable revenues and profits, with immense growth potential,” the company said.
It also claimed that the firm has made progress on steps to monetise real estate which includes nearly 125 acres of land at Dhirubhai Ambani Knowledge City (DAKC) in Navi Mumbai with development rights of potentially over 17 million square feet and another around central Delhi measuring nearly 4 acres.
“Indications of interest from leading developers, and independent third party valuations, have established significantly higher present value monetisation potential of Rs 10,000 crore for the DAKC Complex alone,” RCom said.